APRIL 25, 2002

How serious are the financial problems in F1?

IT is sometimes hard to take Formula 1 team bosses seriously when they complain about it being hard to find money. Travel to the races and you will see all the management travelling in business class and the team bosses generally fly by private jet. More often that not the jets are owned by the racing team rather than the individuals. Thus when they get up and whine about their struggles it is hard not to suggest that perhaps they could lop great chunks from their budgets by coming back down to earth and living how the rest of the world lives.

For some this seems to be a hard concept to grasp.

The team bosses - unless they are playing to the peanut gallery - all accept that the only way to cut costs in Formula 1 is for the teams to run out of money. This is now happening on the back half of the grid. For one or two teams it is a very serious business, but despite the collapse of Prost there are still 11 operational teams.

According to our sources, there is no crisis in F1 until at least two more teams crash, as there is believed to be an agreement with promoters that the teams will supply a minimum of 18 cars for a race. That figure may be 16 cars but as the Concorde Agreement remains a document which is not public this is hard to verify.

One way or another it is highly unlikely that three teams will go out of business. Cutting operational costs (as is now happening in some teams) will keep those without massive debt afloat.

The biggest cost for the struggling teams (or at least some of them) is the cost of the engines, but when you actually analyze who is paying what you realize that only Arrows and Sauber are actually forking out for engines this year and Sauber's costs are largely covered by the deal with Petronas. Ironically the Swiss team is also being funded heavily this year by McLaren thanks to the settlement agreed last year over Kimi Raikkonen. The Minardi engine supply from Asiatech is free of charge.

All the other teams are supplied with free engines or are owned by the automobile manufacturers and in many ways the recession and the wiping out of the smaller teams is playing into their hands in the political battle over the control of the commercial rights in F1. If a couple of smaller teams collapse there will be fewer votes on the F1 Commission and so the power of the manufacturers will increase.

A look at the grid underlines just how powerful they are now becoming: McLaren in 40% owned by Mercedes-Benz and is a major player in the plans for the GPWC; Ferrari is owned by Fiat and is similarly keen on the rival world championship coming to fruition. Renault, Toyota and Jaguar are all fully owned and controlled by automobile manufacturers. Williams remains an independent operator but is deep in a partnership with BMW and the Munich firm is heavily involved with the GPWC as well. Sauber is independent but dependent on Ferrari for engines and so tends to always vote with Ferrari. Jordan, Arrows and Minardi are all independent and all are struggling. And British American Racing is under the wing of BAT (an organization to which money is counted not in mere millions but rather in billions). At the same time David Richards is clearly working towards doing some kind of deal with Honda for the future.

In the most extreme scenario, one could see the three smaller independents going to the wall. If that were to happen (which is really not likely) there would still be 16 cars on the grid and at the same time the manufacturers would have a near-monopoly, which would, of course, force the issue over commercial rights. Their long-term aim is for the teams to get a bigger slice of the F1 revenues than is currently the case. The current F1 turnover (excluding the profits being made by Allsport Management for trackside signage, title sponsorships and official supplier arrangements and hospitality) is just short of $600m. It is not clear how this breaks down but we believe that the teams get less than $200m of this and that is split between them with the bigger teams getting more and the little teams getting less.

When you do the sums it is easy to see why the manufacturers want control of all the money being generated by the sport - which could be up near in the $850m bracket. Allowing for administrative costs and so on, it could still double the money available to teams and a better distribution could bring in $50m, which would make even the little teams effectively self-funding, particularly if the engine manufacturers agreed to supply two teams - if called upon to do so.

Thus, in a twisted way, it is not in the interest of the little teams to support the current system. They should be falling in line with the manufacturers and looking ahead to a new era.